Thursday, September 29, 2011

Rationale for Operation Twist

So I was looking at this graph of term structures for the end of September of the past 5 years: 

Operation twist is designed to raise short rates and lower long rates in an attempt to reduce the distance between the two rates. In other words, to make 2011 term structure look more like 2006/2007, albeit at a lower level. I haven't done a lot of leg work on this one, but will a flatter term structure help? I'm not convinced the bank lending behavior of 2006/2007 is something we want to repeat. Any thoughts on this issue?

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